Appendix 4E (Listing Rule 4.3A) Lynas Corporation Ltd (ACN ...€¦ · 2020-06-30 · Appendix 4E...

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Appendix 4E (Listing Rule 4.3A)

Lynas Corporation Ltd (ACN 009 066 648)

And Controlled Entities

For the year ended 30 June 2020

Reporting Period: Year ended 30 June 2020

Comparative Reporting Period: Year ended 30 June 2019

Results for announcement to market

In AUD (000’s) 30 June 2020 30 June 2019 Change % Change

Revenue from ordinary activities 305,111 363,541 (58,430) (16.1%) Earnings before interest, tax, depreciation, amortisation and treasury charges (EBITDA) 59,722 100,741 (41,019) (40.7%) (Loss) / profit from ordinary activities after tax attributable to members. (19,395) 83,079 (102,474) (123.3%) Net (loss) / profit for the period attributable to members (19,395) 83,079 (102,474) (123.3%)

Dividend Information

No dividends have been paid or proposed at 30 June 2020

Net Tangible Assets

30 June 2020 (cents)

30 June 2019 (cents)

Net Tangible Assets per share 74.06 79.72

Other

Additional Appendix 4E disclosure requirements and commentary on significant features of the operating performance, results of segments, trends in performance and other factors affecting the results for the current period are contained in the 2020 Annual Report.

The Company’s independent auditor Ernst & Young has completed an audit of the Company’s 30 June 2020 Annual Report on which this report is based and has provided an unqualified audit opinion. A copy of the Company’s Annual Report and Financial Statements, inclusive of the audit report, is attached.

ACN 009 066 648

and

Controlled Entities

Consolidated Financial Report

For the year ended 30 June 2020

Corporate Directory Information

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ABN 27 009 066 648 Directors Mike Harding Kathleen Conlon Amanda Lacaze Philippe Etienne John Humphrey Grant Murdoch Company Secretary Andrew Arnold Ivo Polovineo

Registered Office Level 1, 45 Royal Street East Perth WA 6004 Telephone: +61 8 6241 3800 Email: [email protected] Share Register Boardroom Pty Ltd Level 12, Grosvenor Place 225 George Street Sydney NSW 2000 Telephone: +61 2 9290 9600 Fax: +61 2 9279 0664 Email: [email protected] Auditors Ernst & Young 11 Mounts Bay Road Perth WA 6000 Internet Address www.lynascorp.com

mailto:[email protected]

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Table of Contents

DIRECTORS’ REPORT ........................................................................................................................................... 4

SUSTAINABILITY STATEMENT .......................................................................................................................... 18

REMUNERATION REPORT – AUDITED .............................................................................................................. 19

DIRECTORS’ DECLARATION .............................................................................................................................. 31

AUDITOR’S INDEPENDENCE DECLARATION ................................................................................................... 32

INDEPENDENT AUDITOR’S REPORT ................................................................................................................. 33

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ................ 40

CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................................... 41

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ................................................................................ 42

CONSOLIDATED STATEMENT OF CASH FLOWS ............................................................................................ 43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................................................................................. 44

Lynas Corporation Limited and Controlled Entities

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Directors’ Report The Board of Directors (the “Board” or the “Directors”) of Lynas Corporation Limited (the “Company”) and its subsidiaries (together referred to as the “Group”) submit their report for the year ended 30 June 2020. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: Corporate information Lynas Corporation Limited is limited by shares and is incorporated and domiciled in Australia. The Group’s corporate structure is as follows:

DIRECTORS The names and details of the Company’s Directors who were in office during or since the end of the financial year are as set out below. All Directors were in office for this entire period unless otherwise stated. Mike Harding MSc (MecEn) - Chairman Mr Harding joined the Company as Non-Executive Chairman on 1 January 2015 and has significant experience with industrial businesses, having previously held management positions around the world with British Petroleum (BP), including as President and General Manager of BP Exploration Australia. Mr Harding is currently Chairman of Downer EDI Ltd, Chairman of Horizon Oil Limited, and a Non-Executive Director of Cleanaway Waste Management Limited (formerly Transpacific Industries Group Ltd). He is a former Chairman of Roc Oil Company Limited and a former Non-Executive Director of Santos Limited and Clough Limited. Mr Harding is a member of the Health, Safety and Environment Committee and Nomination, Remuneration and Community Committee. Amanda Lacaze BA, MAICD - Managing Director Ms Lacaze was appointed as Managing Director and Chief Executive Officer of the Company on 25 June 2014 following her appointment as a Non-Executive Director of the Company on 1 January 2014. Ms Lacaze brings more than 25 years of senior operational experience to Lynas, including as Chief Executive Officer of Commander Communications, Executive Chairman of Orion Telecommunications and Chief Executive Officer of AOL|7. Prior to that, Ms Lacaze was Managing Director of Marketing at Telstra and held various business management roles at ICI Australia (now Orica and Incitec Pivot). Ms Lacaze's early experience was in consumer goods with Nestle. Ms Lacaze is currently a Non-Executive Director of ING Bank Australia Ltd and is a member of Chief Executive Women and the Australian Institute of Company Directors. Ms Lacaze holds a Bachelor of Arts Degree from the University of Queensland and postgraduate Diploma in Marketing from the Australian Graduate School of Management. Kathleen Conlon BA (Econ) (Dist.), MBA, FAICD - Non-Executive Director Ms Conlon was appointed as a Non-Executive Director from 1 November 2011. Ms Conlon is currently a Non-Executive Director of REA Group Limited, Aristocrat Leisure Limited, BlueScope Steel Limited and The Benevolent Society and a former Non-Executive Director of CSR Limited. She is also a member of Chief Executive Women, former President of the NSW division of the Australian Institute of Company Directors and a former member of the National Board of the Australian Institute of Company Directors. Ms Conlon is also a former Chairperson of the audit committee of the Commonwealth Department of Health. Prior to her Non-Executive Director career, Ms Conlon spent 20 years in professional consulting where she successfully assisted companies to achieve increased shareholder returns through strategic and operational improvements in a diverse range of industries. Ms Conlon is one of the pre-eminent thought leaders in the area of operations and change management, both in Australia and globally. In 2003, Ms Conlon was awarded the Commonwealth Centenary medal for services to business leadership.


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Ms Conlon is the Chair of the Nomination, Remuneration and Community Committee and a member of the Health, Safety and Environment Committee. Philippe Etienne MBA, BSc (Phys) (Pharm) - Non-Executive Director Mr Etienne joined the Company as a Non-Executive Director on 1 January 2015. He is a Non-Executive Director of Cleanaway Waste Management Limited (formerly Transpacific Industries Group Ltd), Aristocrat Leisure Limited and Chairman of ANZ Terminals Pty Ltd. Mr Etienne was also the former Managing Director and Chief Executive Officer of Innovia Security Pty Ltd. Previously, he was Chief Executive Officer of Orica Mining Services and was a member of Orica Limited’s Executive Committee. Mr Etienne is a graduate of the Australian Institute of Company Directors. His career includes senior executive positions with Orica in Australia, the USA and Germany including strategy and planning and responsibility for synergy delivery of large scale acquisitions. Mr Etienne is the Chair of the Health, Safety and Environment Committee and a member of the Audit and Risk Committee. John Humphrey LLB - Non-Executive Director Mr Humphrey joined the Company as a Non-Executive Director on 15 May 2017. His key areas of expertise include mergers and acquisitions, corporate finance and corporate governance. Mr Humphrey is a senior consultant to King & Wood Mallesons. He was the Dean of the Faculty of Law at Queensland University of Technology until June 2019. He has held non-executive director positions at other listed companies over many years and is currently Chairman and Non-Executive Director of Auswide Bank Ltd (formerly Wide Bay Australia) and Spotless Group Holdings Ltd. His previous positions include Non-Executive Director of Horizon Oil Ltd, Deputy Chairman of King & Wood Mallesons, Non-Executive Director of Downer EDI Ltd, Villa World Ltd, and Sunshine Broadcasting Network Ltd. He has also served as a member of the Australian Takeovers Panel. Mr Humphrey is a member of the Audit and Risk Committee and Nomination, Remuneration and Community Committee. Grant Murdoch, M COM (Hons), FAICD, FCA – Non-Executive Director Mr Murdoch joined the Company as a Non-Executive Director with effect from 30 October 2017. Mr Murdoch has more than 38 years of chartered accounting experience. From 2004 to 2011, Mr Murdoch led the corporate finance team for Ernst & Young Queensland and was an audit and corporate finance partner with Deloitte from 1980 to 2000. Mr Murdoch has extensive experience in providing advice in relation to mergers, acquisitions, takeovers, corporate restructures, share issues, pre-acquisition pricing due diligence advice, expert reports for capital raisings and initial public offerings. Mr Murdoch is currently a Non-Executive Director and chair of the audit committee of the listed entity OFX Ltd. He was previously a director and the chair of the audit committee for ALS Limited, Redbubble Limited and QIC. He is a senator of the University of Queensland (as well as chair of the risk committee and member of the finance committee), an adjunct professor at the University of Queensland Business School and a director of UQ Holdings Limited. Mr Murdoch has a Master’s degree in Commerce (Honours) from the University of Canterbury, New Zealand, is a graduate of the Kellogg Advanced Executive Program and the Advanced Leadership Program at Northwestern University. He is a fellow of both the Institute of Chartered Accountants in Australia and New Zealand and of the Australian Institute of Company Directors. He is a member of the AICD State Council for Queensland for the Australian Institute of Company Directors. Mr Murdoch is the Chair of the Audit and Risk Committee. Resignations There were no resignations of directors during the year. COMPANY SECRETARIES Andrew Arnold Mr Arnold was appointed as General Counsel and Company Secretary to the Group on 23 July 2008, following 15 years as a lawyer at Deacons, including six years as a Partner. During that time Mr Arnold also spent two years on secondment at Riddell Williams, Seattle. In his role at Deacons he had been overseeing the legal work of the Group since 2001. Mr Arnold is the responsible person for communication with the Australian Securities Exchange (ASX) in relation to listing rule matters. Ivo Polovineo Mr Polovineo, appointed as Joint Company Secretary on 20 October 2014, was previously Chief Financial Officer and Company Secretary for Sino Gold Mining Limited, formerly an ASX 100 company. He was with Sino Gold for 12 years as part of the executive team. Mr Polovineo is a Fellow of the Institute of Public Accountants (FIPA) with 35 years’ experience as a CFO and Company Secretary including 25 years in the resources sector. Mr Polovineo is also Company Secretary of Variscan Mines Limited, Silver City Minerals Limited and Thomson Resources Ltd. Remuneration of key management personnel Information about the remuneration of key management personnel is set out in the remuneration report of this Directors’ Report. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director of the Company. Nature of operations and principal activities The principal activities of the Group are:

• Integrated extraction and processing of Rare Earth minerals, primarily in Australia and Malaysia; and

• Development of Rare Earth deposits.


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SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Except as disclosed in the review of operations the factors and business risks that affect future performance and the subsequent events, there

have been no significant changes in the state of affairs of the Group during the current financial year.

Performance review The Directors together with management monitor the Group’s overall performance from implementation of the strategic plan through to the

operating and financial performance of the Group.

Review of operations

• As a result of a number of years of prudent capital management, Lynas entered the COVID-19 pandemic in robust financial shape. In

March 2020, the Lynas team moved quickly to implement recommended government safety and health recommendations and industry

best practices across all sites and the company continues to update protocols in line with the evolving situation.

• Lynas recorded an EBITDA of $59.8m for the year (FY19: $100.7m). which was heavily influenced by the 6 week temporary shutdown

of the Lynas Malaysia plant from late March 2020 to early May 2020, in accordance with the Malaysian government’s COVID-19

Movement Control Order. There was no production during this period and sales (from inventory) were limited. Mt Weld operations

were also temporarily shut down from 9 April 2020 until 16 June 2020 after target inventory levels of concentrate stocks were reached.

Mt Weld staff were redeployed to development and maintenance projects during that period. A company-wide focus on cost

management and other non-operational work limited the effect on cash flows during this period.

• Operations were restarted in May 2020 at approximately 70% of the Lynas NEXT production rates which was determined as sufficient

to refill supply chains and to restock depleted inventories of critical materials while maintaining new COVID-related health and safety

protocols for our people and local communities.

• Lynas Malaysia received 2 operating licenses during the year, the second and current licence being for a 3 year period. The first

licence renewal was in late August 2019 for a 6 month period. At the end of February 2020 a longer licence renewal for a three year

term to March 2023 was received. The achievement of a three year licence subject to acceptable conditions provides the foundation

for the future operation of the Lynas Malaysia business and clarity regarding:

o the onsite disposal and commercialisation of NUF residue; and

o resolution of the WLP residue permanent disposal facility requirements in Malaysia.

• During the year, Lynas continued to consolidate its position as the world’s second largest Rare Earths producer with strong customer

relationships in key markets of Asia, Europe and North America. Net sales revenue for FY2020 was $305.1m (FY19: $363.5m) and

total sales volumes were 14,172 REOt (FY19: 19,154 REOt). This result reflects the effect of the temporary production halts (due to

COVID-19 Movement Control Order and reaching the concentrate processing limit in December 2019) and lower market pricing during

the year. Despite this, product quality initiatives continued to deliver higher value La and Ce products.

• Substantial progress was achieved during FY20 on key Lynas 2025 projects, in particular the planned Rare Earth Processing Facility

in Kalgoorlie and the proposed Heavy Rare Earths plant, currently planned for location in Texas.

The significant achievements in relation to these projects during FY20 included the following:

a) Securing Major Project Status from the Australian federal government and lead agency status from the WA State government

for the Kalgoorlie project;

b) Securing local support from the City of Kalgoorlie Boulder and conducting several successful community engagement forums

in Kalgoorlie;

c) Recruiting the core team to lead the Kalgoorlie project;

d) Release of the contract for the kiln to be installed in Kalgoorlie, the longest lead time item (with contract awarded in July 2020)

e) Receiving notification of the US Department of Defense’s intention to award a phase 1 contract for the Heavy Rare Earths

plant to the Lynas / Blue Line team;

f) Progressing detailed planning and engineering work for the proposed Heavy Rare Earths separation plant.

• Cash flows from operating activities continue to be positive and have allowed the Group to invest in expansion activities and reduce

debt. Positive operational cash flows over the past 3 years have exceeded $270m, excluding costs associated with the discharge of

rehabilitation obligations relating to residue disposal in Malaysia.

• Convertible Bond holders converted a further US$1.5m of the issued bonds during the year, reducing the principal amount of the

outstanding convertible bonds to US$12.2m ($A17.6m) at 30 June 2020. After year end, the remaining bonds were converted and

16.2m shares were issued.

• Completed Mining Campaign 3 was completed at Mt Weld during the year, resulting in approximately 560,000 tonnes of ore extracted.

Mt Weld

The Lynas mine at Mt Weld, Western Australia continued to operate safely and efficiently throughout the year.


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Lynas Malaysia

As announced on 27 February 2020, the Malaysian Atomic Energy Licensing Board (AELB) renewed the operating licence for the Lynas Malaysia

plant for three years expiring March 2023, subject to the following key conditions:

1. Lynas to begin the process of developing the Permanent Disposal Facility (PDF) by early March 2021.

2. Lynas must submit a work development plan for the construction of the PDF and report on its development status as determined by

the AELB.

3. Lynas must ensure that the Cracking and Leaching plant outside Malaysia is in operation before July 2023. After that period, Lynas

will no longer be allowed to import raw materials containing Naturally Occurring Radioactive Material (NORM) into Malaysia.

4. Holding of the financial deposit will be maintained for compliance with the relevant licence conditions.

Lynas has continued to engage productively with local stakeholders and communities. During the year, we welcomed over 2,500 visitors to our

plant. This included visitors from Institute of Engineers Malaysia, Pahang Institute of Chemistry, IAEA Postgraduates in Radiation Protection

and Safety, Royal Military College Alumni, Metal Events International Rare Earths Conference participants and 2000 esteemed visitors and

community members who attended an Open Day at our plant. In all cases visitors to the Lynas Malaysia plant provided positive feedback

including that it was well worth their time to see the plant with their own eyes.

Our excellent CSR record continued through the year and Lynas Malaysia received a gold medal CSR rating from EcoVadis, ranking in the top

5% of companies evaluated, as well as being recognised by Lang International with Lynas Malaysia receiving the Best in CSR Award. Lynas

continues to proactively engage with key NGOs and our local communities directly and in January 2020 commenced a new communication

programme in major Malaysian media.

Malawi deposit

Since fiscal year 2012, no further capital investment has been made on the Kangankunde Rare Earths (“KGK”) resource development in Malawi

and the project remains on hold while the Malawi deposit remains the subject of an ongoing title dispute. As announced on 22 January 2019,

the Malawi government has purported to cancel the Group’s Malawi mining lease and the Group has initiated judicial review proceedings in the

Malawi courts challenging that decision.

Health, safety and environment

Certification to the OHSAS 18001 (Occupational Health and Safety Management Systems), ISO 14001 (Environmental Management Systems)

and ISO 9001 (Quality Management Systems) standards were maintained during the year for both the Western Australian and Malaysian

operations. The Group successfully undertook ISO recertification audits in July and August 2019 and is currently undertaking recertification

audits for 2020.

A continued focus on health and safety initiatives resulted in Lynas Malaysia achieving Lynas Malaysia achieved 461 days LTI free in August

2019. The 12-month rolling lost time injury frequency rate as at 30 June 2020 was 0.8 per million hours worked (2019: 0.9 per million hours).

The Company continued to carefully manage all residues, air, water and solid, and consistently met or exceeded its licence requirements in both

of its operating locations.

On 26 November 2019, the AELB completed its pre-licence renewal audit of the Lynas Malaysia operations. All regulatory conditions were in

compliance. The audit result was “Very Satisfactory”, which is the highest performance rating. This is the third audit in a row that we have

maintained a “Very Satisfactory” performance rating. The Lynas Malaysia operating licence was subsequently renewed for a 3 year period (27

February 2020).

In line with our commitment to international environmental best practices, detailed environmental monitoring since the start of Lynas Malaysia’s

operations in Kuantan in 2012 has consistently demonstrated that Lynas Malaysia is compliant with regulatory requirements and international

standards. Information concerning the Company’s environmental monitoring programs, including monitoring data, is available at

www.lynascorp.com.

http://www.lynascorp.com/


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Financial and Operational Performance

Sales volume, revenue and costs

Sales by tonnage and value

FY20 FY19 FY18 FY17 FY20

Percentage change

Sales volume (REOt) 14,172 19,154 17,672 14,616 (26%)

Cash receipts from customers (A$m) 321.8 367.5 383.1 260.4 (12%)

Sales revenue (A$m) 305.1 363.5 374.1 257.0 (16%)

Average selling price (A$/kg) 21.5 19.0 21.6 18.0 13%

Cost of sales (A$m) (257.3) (273.1) (253.0) (242.2) (6%)

The reduced sales volumes reflected the temporary shutdown at Lynas Malaysia between 23 March 2020 and 4 May 2020 in compliance with

the Malaysian government’s COVID-19 Movement Control Order, and the reduced volumes produced during the ramp up of the plant upon

restart.

The quality improvements and product customisation achieved in the La and Ce product family have started to deliver value with an increased

average selling price for this product family despite the market price trend. Lynas continues to develop its La-Ce specialties business, a strategic

move that will further enhance the value of this business independently of market price.

Total cost of sales has decreased based on lower production volumes and cost management during the temporary production halt periods. This

has occurred despite a significant increase in depreciation charges as a result of accelerated depreciation recognised on the Malaysian Cracking

and Leaching assets. This charge forms part of the costs of sales for FY20 and has arisen due to a reassessment of the assets ’ useful life in

light of the new licence conditions. Furthermore, increases in the depreciation recognised on the rehabilitation assets and leased assets and

other costs associated with the COVID-19 shutdowns has increased the total cost of sales.

Market prices The average China domestic price of NdPr (VAT excluded) decreased from US$45.8/kg in June 2019 to US$36.0/kg in June 2020. Future market

price trends will depend on end product demand (in particular in the automotive industry).

Demand for Rare Earth products has been affected by the global COVID-19 situation, especially in those segments related to the automotive

market. It may take a few quarters to clarify the effects on demand of the global COVID-19 pandemic, including the effects of government

economic policies and possible regulatory developments. The latest forecast from the International Energy Association (IEA) estimates a likely

decrease in the global automotive market of 15% in 2020 compared to 2019. However, it also estimates that sales of EVs (battery electric cars

and plug hybrid cars) would remain unchanged compared to last year, suggesting a growing consumer trend towards EVs. A 15% decrease in

the global automotive market represents a 1,000 tons per annum or 2-3% decrease in demand for NdPr. Most of this forecast decrease has

occurred in the first half of this calendar year (China in Q1, Japan in Q2), and based on customer feedback, the Group expects demand for NdPr

to improve in the second half of this year.

Demand for Cerium is affected by the decline of the automotive market and the decrease of internal combustion engine vehicles (ICEs) in the

vehicle mix. Accordingly, Lynas continues to work on developing new applications and market positions for Cerium specialty products.

Demand for Lanthanum, which is mainly used in fluid catalytic cracking (FCC) in oil refineries, depends on demand for gasoline. During the June

quarter, the movement controls imposed by many countries translated into substantial reductions in gasoline consumption, leading to a significant

decrease in Lanthanum demand for FCC. We consider this to be a very temporary situation since the number of cars on the road has mostly

returned to normal, and most existing cars are ICE vehicles.

Lynas is primarily focused on serving customer demand and supporting development of the market outside China. Lynas continues to make

strong progress towards its objective of selling all production to outside China markets.

Costs and production volumes

Costs by tonnage and value

FY20 FY19 FY18 FY17 FY20

Percentage change

Ready for sale production volume total (REOt) 14,562 19,737 17,753 16,003 (26%)

Ready for sale production volume NdPr (REOt) 4,656 5,898 5,444 5,223 (21%)

Production at the Lynas Malaysia plant was temporarily halted on 23 March 2020 in compliance with the Malaysian government’s COVID-19

Movement Control Order. Production restarted at the Lynas Malaysia plant on 4 May 2020 in line with the easing of Malaysian government

control orders, and we continued to maintain prudent Standard Operating Procedures. Operations were restarted at approximately 70% of the

Lynas NEXT production rates which was determined as sufficient to refill supply chains and to restock depleted inventories of critical materials

while maintaining new COVID-19 related health and safety protocols for our people and local communities. Since June 2020, production has

been operating at 75% of Lynas NEXT rates and this rate is expected to be maintained until COVID-19 uncertainty is resolved.


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Production at Lynas Malaysia was also temporarily halted in December 2019 after annual (calendar year) lanthanide concentrate processing

limits were reached. Lynas Malaysia utilised this time to invest in various circuit upgrades to further improve product quality.

Cash and cash flows

In A$m FY20 FY19

Net operating cash inflows 32.1 104.1

Net investing cash outflows (21.8) (40.6)

Net financing cash outflows 2.0 (16.8)

Net cash flows 12.3 46.7

Impact of foreign exchange (0.3) 0.7

Cash and cash equivalents 101.7 89.7

Lynas maintained a positive operating cash flow and an overall positive net cash flow despite a challenging year and the temporary shutdown

in line with the Malaysian government’s COVID-19 Movement Control Order. During this time, Lynas focused on cost management and other

non-operational work, limiting the impact on cash flows. Included in the operating cash flows is the first payment of $14.9m (2019: nil) in relation

to the settlement of a total MYR400m (A$136m) rehabilitation obligation in relation to residue disposal in Malaysia. Net investing cash outflows

included a deposit paid as security to the AELB of $12.5m and payments for property, plant and equipment and $12.1m. These outflows have

been offset by proceeds from interest received of $2.9m. Net financing cash inflows from the issue of share capital in relation to the exercise of

warrants was $11.6m, offset by $2.6m in lease liability payments and a further $7.0m in interest and other financing costs.

Debt and capital

FY20 FY19 FY18

JARE loan A$m 181,222 171,870 207,449

Convertible bonds A$m 17,777 18,062 17,663

Total borrowings 198,999 189,932 225,112

Financial income A$m 2.7 2.3 1.2

Financial expenses A$m (15.6) (22.0) (49.7)

Interest forgiven on JARE loan A$m - - 20.8

Gain on extinguishment of debt A$m - 46.5 -

US$1.5m (A$2.0m) of convertible bonds were converted during the year, leaving an outstanding principal of US$12.2m (A$17.6m) at 30 June 2020. The A$ equivalent present value of the bonds increased due to accretion of interest and exchange rate movements over the period. As noted in the subsequent events, on 3 August 2020, bondholders converted the remaining US$12.2m convertible bonds which resulted in an additional 16.2m shares issued. As a result of these conversions, the remaining liability in respect to the convertible bonds has been fully extinguished.

No principal repayments were made on the JARE facility. The balance increased due to the unwinding of the discounting of the future cash

outflows. The financial expenses have decreased by 29% as a result of lower interest expense based on lower principal balances for both the

JARE facility and the convertible bonds throughout the year.

During the year ended 30 June 2020, the Company issued shares as shown below:

Number

(000’s)

Shares on issue 30 June 2019 667,802

Issue of shares pursuant to conversion of convertible bonds

2,000

Issue of shares pursuant to exercised performance rights

6,151

Issue of shares pursuant to exercised warrants

23,256

Shares on issue 30 June 2020

699,209

In addition to the ordinary shares on issue there were the following unlisted convertible bonds on issue:

Number

(000’s)

Unlisted convertible bonds (Conversion price: $1.00 at a set exchange rate of A$1.00 = US$0.75) 12,152


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Performance rights As at 30 June 2020, the Company had the following options and performance rights on issue:

Number

(000’s)

Performance rights 4,462

(Loss) / earnings per share

For the year ended 30 June FY20 FY19

Basic (loss) / earnings per share (cents per share) (2.79) 12.50

Diluted (loss) / earnings per share (cents per share) (2.79) 11.90

Dividends There were no dividends declared or paid during the year ended 30 June 2020 (2019: nil) and no dividends have been declared or paid since 30 June 2020. Risk management

The Group takes a proactive approach to risk management. The Directors are responsible for ensuring that risks and opportunities are identified

on a timely basis and that the Group’s objectives and activities are aligned with these risks and opportunities.

The Group believes that it is crucial for Directors to be a part of this process, and as such has established an Audit and Risk Management

Committee and a Health, Safety and Environment Committee.

FACTORS AND BUSINESS RISKS THAT AFFECT FUTURE PERFORMANCE

Lynas operates in a changing environment and is therefore subject to factors and business risks that will affect future performance. Set out

below are the principal risks and uncertainties that could have a material effect on Lynas’ future results from an operations and financial position.

It is not possible to determine the likelihood of these risks occurring with any certainty. In the event that one or more of these risks materialise,

Lynas’ reputation, strategy, business, operations, financial condition and future performance could be materially and adversely affected. There

may also be other risks that are currently unknown or are deemed immaterial, but which may subsequently become known and/or material.

These may individually or in aggregate adversely affect Lynas.

1 Impact of COVID-19 and general economic conditions

In light of recent global macroeconomic events, including the impact of COVID-19, it is likely that some of the countries in which Lynas operates will experience an economic recession or downturn of uncertain severity and duration. These economic disruptions could have a material adverse effect on Lynas’ operating and financial position and performance and could affect the price of Lynas shares.

Additionally, the events relating to COVID-19 have resulted in significant market changes and volatility of supply and demand. The outbreak and its impacts are rapidly evolving and outcomes are uncertain and dependent upon many factors beyond Lynas’ control.

Many of the risks highlighted in further detail below may be heightened due to the impacts of the COVID-19 pandemic. There continues to be considerable uncertainty as to the further short- and long-term impact of COVID-19 including in relation to governmental responses, international trade impacts, potential taxation changes, work stoppages, lockdowns, quarantines, travel restrictions and the impact on the global economy and share markets.

The potential effects of these possible outcomes on Lynas include:

• closure of and/or reduced capacity at Lynas’ plants and facilities;

• delays or interruption in supply chains leading to an inability to secure or obtain raw materials, finished products or components, or to distribute products to customers;

• health outcomes for Lynas’ employees or its customers’ employees, which could result in the closure of a plant or facility for a period and could adversely affect the availability of technically equipped and qualified personnel needed to conduct certain operations;

• a reduction in processing of downstream products and production of end-products that utilize Lynas' Rare Earths or other industrial activity, leading to a decrease in demand for Lynas' Rare Earths;

• counterparty non-performance or claims under existing contractual arrangements;

• insolvency of counterparties (including customers);

• delays of projects with large associated capital spend, deferral of discretionary capital spend and impact on valuation of assets;

• disruptions to international trade resulting from policies developed by governments in response to COVID-19 or as a result of disputes or disagreements amongst governments on matters relating directly or indirectly to COVID-19.


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2 Operational risks

2.1 Rare earth prices

Lynas’ revenue is affected by market fluctuations in Rare Earth prices. This is because the product prices used in the majority of Lynas’ sales are calculated by pricing formulae that reference published pricing for various Rare Earths materials. The market price has been volatile in the past because it is influenced by numerous factors and events that are beyond the control of Lynas. These include:

• Supply side factors: Supply side factors are a significant influence on price volatility for Rare Earth materials. Supply of Rare Earth materials is dominated by Chinese producers. The Chinese Central Government regulates production via quotas and environmental standards. Over the past few years, there has been significant restructuring of the Chinese market in line with China Central government policy. However, periods of over supply or speculative trading of Rare Earths can lead to significant fluctuations in Rare Earth pricing.

• Demand side factors: Demand side factors are also a significant influence on price volatility for Rare Earth materials. Demand for end-products that utilise Lynas' Rare Earths including internal combustion vehicles, hybrid vehicles, electric vehicles and electronic devices fluctuates due to factors including global economic trends, regulatory developments and consumer trends.

• Geopolitical factors: Recently Rare Earths have been the focus of significant attention, including as a result of the recent trade tensions between the US and China.

The table below illustrates how China domestic prices of NdPr (excluding VAT) have moved over FY20:

September 2019 Quarter December 2019 Quarter March 2020 Quarter June 2020 Quarter US$/kg 39.0 36.2 35.0 33.8

Lynas’ approach to reducing pricing volatility for its customers includes:

• Promoting fixed pricing to its direct customers, set for periods relevant to customer operations;

• Developing long term contracts that aim to reduce price variations for end users and OEMs such as car makers and wind turbine

manufacturers.

Lynas achieved a small price premium compared to the NdPr market price, supported by:

• Sustained demand from the Japanese market and selected customers in China;

• The recognition by the market that Lynas is now well established as the second largest producer of Rare Earths in the world;

• End users placing more importance on being able to trace the origin of rare earths from a sustainable and auditable source of

production to their end products, which Lynas can fulfil.

Strong Rare Earth prices, as well as real or perceived disruptions in supply, may create economic incentives to identify or create alternate technologies that ultimately could depress future long-term demand for Rare Earths. This may, at the same time, incentivise the development of additional mining properties to produce Rare Earths. If industries reduce their reliance on Rare Earth products, the resulting change in demand could have a material adverse effect on Lynas' business. In particular, if prices or demand for Rare Earths were to decline, this could impair Lynas' ability to obtain financing for current or additional projects and its ability to find purchasers for its products at prices acceptable to Lynas. It is impossible to predict future Rare Earths price movements with certainty. Any sustained low Rare Earths prices or further declines in the price of Rare Earths, including as a result of periods of over-supply and/or speculative trading of Rare Earths, will adversely affect Lynas' business, results of operations and its ability to finance planned capital expenditures, including development projects.

2.2 Market competition

Lynas' Rare Earths supply contracts and profits may be adversely affected by the introduction of new mining and separation facilities and any increase in competition in the global Rare Earths market, either of which could increase the global supply of Rare Earths and thereby potentially lower prices.

2.3 Exchange rates

Lynas is exposed to fluctuations in the US dollar as all sales are denominated in US dollars. Lynas borrows money and holds a portion of cash in US dollars, which provides Lynas with a partial natural hedge. Accordingly, Lynas’ income from customers, and the value of its business, will be affected by fluctuations in the rate by which the US dollar is exchanged with the Chinese Renminbi and the Australian dollar. Lynas is exposed to fluctuations in the Malaysian ringgit (MYR), which is the currency that dominates Lynas’ cash operating outflows. In addition, most of Lynas’ non-current assets are Lynas Malaysia assets which are denominated in MYR. Adverse movements in the Australian dollar against the US dollar and the MYR may have an adverse impact on Lynas ’ financial position and operating results. The following table shows the average USD/AUD and MYR/AUD exchange rates over the past five years:

30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016

$ $ $ $ $

USD/AUD 0.6714 0.7156 0.7391 0.7545 0.7283

MYR/AUD 2.8233 2.9521 2.9837 3.2331 3.0098

In-China market prices for Rare Earths are denominated in the Chinese Renminbi. In addition, a devaluation in the Chinese Renminbi would increase attractiveness in Chinese exports and China’s internal supply. Fluctuation in the Chinese Renminbi against the US Dollar therefore also increases the foreign exchange exposure on Lynas.


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2.4 Operational and development risks

Lynas’ operations and development activities could be affected by various unforeseen events and circumstances, such as hazards in exploration, the ability of third parties to meet their commitments in accordance with contractual arrangements, the realisation of tonnages and grades of ore and performance of processing facilities against design specification. Factors such as these may result in increased costs, lower production levels and, following on from that, lower revenue levels. Any negative outcomes flowing from these operational risks could have an adverse effect on Lynas’ business, financial condition, profitability and performance.

2.5 Nature of mining

Mineral mining involves risks, which even with a combination of experience, knowledge and careful evaluation may not be able to be fully mitigated. Mining operations are subject to hazards normally encountered in exploration and mining. These include unexpected geological formations, rock falls, flooding, dam wall failure and other incidents or conditions which could result in damage to plant or equipment, which may cause a material adverse impact on Lynas' operations and its financial results. Projects may not proceed to plan with potential for delay in the timing of targeted output, and Lynas may not achieve the level of targeted mining output. Mining output levels may also be affected by factors beyond Lynas' control.

2.6 Mineral and ore reserves

No assurance can be given that the anticipated tonnages and grades of ore will be achieved during production or that the anticipated level of recovery will be realised. Mineral resource and ore reserve estimates are based upon estimates made by Lynas personnel and independent consultants. Estimates are inherently uncertain and are based on geological interpretations and inferences drawn from drilling results and sampling analyses. There is no certainty that any mineral resources or ore reserves identified by Lynas will be realised, that any anticipated level of recovery of minerals will be realised, or that an identified ore reserve or mineral resource will be a commercially mineable (or viable) deposit which can be legally and economically exploited. Further, the grade of mineralisation which may ultimately be mined may differ materially from what is predicted. The quantity and resulting valuation of ore reserves and mineral resources may also vary depending on, amongst others, metal prices, cut-off grades and estimates of future operating costs (which may be inaccurate). Production can be affected by many factors. Any material change in the quantity of ore resources, mineral reserves, grade, or stripping ratio may affect the economic viability of any project undertaken by Lynas. Lynas' estimated mineral resources and ore reserves should not be interpreted as assurances of commercial viability or potential or of the profitability of any future operations. Investors should be cautioned not to place undue reliance on any estimates made by Lynas. Lynas cannot be certain that its mineral resource and ore reserve estimates are accurate and cannot guarantee that it will recover the expected quantities of metals. Future production could differ dramatically from such estimates for the following reasons:

• actual mineralisation or Rare Earth grade could be different from those predicted by drilling, sampling, feasibility or technical reports;

• increases in the capital or operating costs of the mine;

• decreases in Rare Earth oxide prices;

• changes in the life-of-mine plan;

• the grade of Rare Earths may vary over the life of a Lynas project and Lynas cannot give any assurances that any particular mineral reserve estimate will ultimately be recovered; or

• metallurgical performance could differ from forecast. The occurrence of any of these events may cause Lynas to adjust its mineral resource and reserve estimates or change its mining plans. This could negatively affect Lynas' financial condition and results of operations. Moreover, short-term factors, such as the need for additional development of any Lynas project or the processing of new or different grades, may adversely affect Lynas.

2.7 Processing operations

Lynas' operations are subject to the operating risks associated with Rare Earth processing, including performance of processing facilities against design specification, and the related risks associated with storage and transportation of raw materials, products and residues. These operating risks have the potential to cause personal injury, property damage and environmental contamination, and may result in the shutdown of affected facilities and in business interruption and the imposition of civil or criminal penalties, and negatively impact the reputation of Lynas. The hazards associated with Lynas' mining and processing operations and the related storage and transportation of products and residues include:

• pipeline and storage tank leaks and ruptures;

• explosions and fires;

• mechanical failures; and

• chemical spills and other discharges or releases of toxic or hazardous substances or gases. These hazards may cause personal injury and loss of life, damage to property and contamination of the environment, which may result in suspension of operations and the imposition of civil or criminal penalties, including fines, expenses for remediation and claims brought by governmental entities or third parties. Although Lynas has detailed and closely managed plans to mitigate these risks and maintains property, business interruption and casualty insurance of types and in the amounts that it believes is customary for the chemicals industry, Lynas is not fully insured against all potential hazards incidental to its businesses.

2.8 Availability of key inputs, Including water

The Mt Weld Concentration Plant and the Lynas Malaysia Plant rely on the ready availability of key inputs, including chemical reagents, water, electricity and gas. Any inability of Lynas to obtain such inputs in sufficient quantities on a timely basis could materially adversely affect Lynas’ operations. For example, the insolvency of key suppliers may adversely affect the availability of chemical reagents. In addition, the water supply to the Mt Weld Concentration Plant is primarily sourced from a local aquifer supplemented by recycling, and the water supply to the Lynas Malaysia plant is primarily sourced from the local Kuantan water supply infrastructure, supplemented by recycling. Reductions in water availability from those sources, for example due to changes in weather patterns or failures of infrastructure, could materially adversely affect the availability of water to the Lynas operations.


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2.9 Supply chain and counterparty risk

Lynas is dependent on contractors and suppliers to supply vital goods and services to its operations, including for the supply of chemicals and other materials. Lynas is therefore exposed to the possibility of adverse developments in the business environments of its contractors and suppliers, including in respect of the ability of those contractors and suppliers to meet their commitments under sales contracts. Any disruption to services or supplies may have an adverse effect on Lynas’ financial business and financial condition.

2.10 Reliance on key personnel

Lynas’ execution capacity is substantially attributable to the role played by a group of its senior management and key employees. Lynas’ future success depends significantly on the full involvement of these key executives and employees and its ability to continue to retain and recruit high-level personnel. The loss of key employees could significantly affect Lynas’ operations. In addition, industrial and labour disputes, work stoppages and accidents, and logistical and engineering difficulties may also have an adverse effect on Lynas' profitability and share price.

2.11 Customer risks

Lynas’ revenue is dependent on continuing sales to its key customers, many of whom require delivery to specific timetables of products that comply with detailed specifications. The loss of key customers could significantly affect Lynas’ business, for example due to disputes with customers, customers switching to other suppliers or technologies, or customer businesses being adversely affected by events outside the control of Lynas, including customer insolvency or declining markets for the end-products of customers.

2.12 Industry Trends, including changes in technology

Changes in technology, including switches to renewable energy sources, present both opportunities and risks to the Lynas business. As technologies and consumer trends continue to evolve, new competing technologies may emerge that may reduce demand for Lynas Rare Earth products. Any significant trends away from technologies that utilize Lynas Rare Earths products could materially adversely affect the Lynas business.

2.13 Project development risks

Lynas is undertaking significant and complex construction projects, primarily related to the new Lynas Cracking & Leaching facility in Kalgoorlie. Construction projects are subject to numerous risks, many of which are outside the control of Lynas, including project delays and cost overruns, disputes with contractors, insolvency of contractors, problems with design, delays in commissioning or ramp-up and new facilities not performing in accordance with expectations.

3.1 General regulatory risks

Lynas' business is subject, in each of the countries in which Lynas operates, to various national and local laws and regulations relating to the mining, production, marketing, pricing, transportation and storage of Lynas' products and residues. A change in the legislative and administrative regimes, taxation laws, interest rates, and other legal and government policies may have an adverse effect on the assets, operations and ultimately the financial performance of Lynas and the market price of Lynas shares. Other changes in the regulatory environment (including applicable accounting standards) may have a material adverse effect on the carrying value of material assets or otherwise have a material adverse effect on Lynas' business and financial condition.

3.2 Licences, permits, approvals, consents and authorisations

Lynas’ mining and production activities are dependent on the granting and maintenance of appropriate licences, permits, approvals, and regulatory consents and authorisations (including those related to interests in mining tenements and those related to the operation of the Lynas plants in Australia and Malaysia), which may not be granted or may be withdrawn or be made subject to limitations at the discretion of government or regulatory authorities. Although such licences, permits, approvals and regulatory consents and authorisations may be granted, continued or renewed (as the case may be), there can be no assurance that such licences, permits, approvals and regulatory consents and authorisations will be granted, continued or renewed as a matter of course, or as to the terms of renewals or grants, including that new conditions, or new interpretations of existing conditions, will not be imposed in connection therewith. Whether such licences, permits, approvals and regulatory consents and authorisations may be granted, continued or renewed (as the case may be) often depends on Lynas being successful in obtaining the required statutory approvals for proposed activities. If there is a failure to obtain or retain the appropriate licences, permits, approvals and regulatory consents and authorisations, or if there is a material delay in obtaining or renewing them or they are granted subject to onerous conditions or withdrawn, then Lynas’ ability to conduct its mining and production activities may be adversely affected.

3.3 Political risks and government actions

Lynas' operations could be affected by government actions in Australia, Malaysia and other countries or jurisdictions in which it has interests. Lynas is subject to the risk that it may not be able to carry out its operations as it intends, including because of a change in government, legislation, guidelines, regulation or policy, including in relation to the environment, the Rare Earths sector, competition policy, native title and cultural heritage. Such changes could affect land access, the granting of licenses and other tenements, the approval of developments and freedom to conduct operations. The possible extent of introduction of additional legislation, regulations, guidelines or amendments to existing legislation that might affect Lynas' business is difficult to predict. Any such government action may require increased capital or operating expenditures and could prevent or delay certain operations by Lynas, which could have a material adverse effect on Lynas' business and financial condition. Lynas also may not be able to ensure the security of its assets located outside Australia, and is subject to risks of, among other things, loss of revenue, property and equipment as a result of hazards such as expropriation, war, insurrection and acts of terrorism and other political risks and increases in taxes and government royalties. The effects of these factors are difficult to predict and any combination of one or other of the above may have a material adverse effect on Lynas' business and financial position. Recent changes of governments in Malaysia created additional political focus on Lynas, which creates additional risks for the business. In order to continue operating the business as currently projected, Lynas will need to continue to receive new licences, renewals of existing licences and variations of the terms of existing licences. Examples may include increases to concentrate import volumes, additional residue storage approvals


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and periodic renewals of licences. Such amendments would require approval from the relevant regulatory authorities acting in accordance with government policy and licence conditions.

3.4 Malaysian regulatory matters

Without limiting the generality of the risks specified above in this section, as announced on 27 February 2020, the Malaysian Atomic Energy Licensing Board (AELB) has renewed the operating licence for the Lynas Malaysia plant for three years expiring March 2023, subject to the following key conditions:

• Lynas to begin the process of developing the Permanent Disposal Facility (PDF) within the first year from the date of approval of the licence.

• Lynas must submit a work development plan for the construction of the PDF and report on its development status as determined by the AELB.

• Lynas must ensure that the Cracking and Leaching plant outside Malaysia is in operation before July 2023. After that period, Lynas will no longer be allowed to import raw materials containing Naturally Occurring Radioactive Material (NORM) into Malaysia.

• Holding of the financial deposit will be maintained for compliance with the relevant licence conditions. To the extent that Lynas does not, or is not able to, comply with relevant licence conditions including the key conditions specified above, and/or comply with licence conditions within the timeframes prescribed, then Lynas’ licences and approvals may be revoked. Government action, including legal action, may be also taken by or at the direction of the Malaysian government in order to ensure that the terms and conditions of Lynas’ licences and approvals are complied with to levels satisfactory to, and within the timeframes prescribed by, the Malaysian government.

3.5 Environmental risks

Lynas' activities are subject to extensive laws and regulations controlling not only the mining of, exploration for and processing of Rare Earths, but also the possible effects of such activities upon the environment and interests of local communities. In the context of obtaining environmental permits, including the approval of reclamation plans, Lynas must comply with known standards, existing laws and regulations which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. With increasingly heightened government and public sensitivity to environmental sustainability, environmental regulation is becoming more stringent, and Lynas could be subject to increasing environmental responsibility and liability, including laws and regulations dealing with air quality, water and noise pollution and other discharges of materials into the environment, plant and wildlife protection, the reclamation and restoration of certain of its properties, greenhouse gas emissions, the storage, treatment and disposal of residues and the effects of its business on the water table and groundwater quality. Sanctions for non-compliance with these laws and regulations may include administrative, civil and criminal penalties, revocation of permits and corrective action orders. These laws sometimes apply retroactively. In addition, a party can be liable for environmental damage without regard to that party's negligence or fault. Given the sensitive nature of this area, Lynas may be exposed to litigation and foreseen and unforeseen compliance and rehabilitation costs despite its best efforts.

3.6 Climate change risks

Climate change and the rapidly evolving response to it may lead to a number of risks, including but not limited to:

• Increased political, policy and legal risks (e.g. the introduction of regulatory changes aimed at reducing the impact of, or addressing climate change, including reducing or limiting carbon emissions);

• Increased capital and operational costs, including increased costs of inputs and raw materials; and

• Technological change and reputational risks associated with Lynas’ conduct. Climate change may also result in more extreme weather events and physical impacts on Lynas due to the energy intensive nature of Lynas’ operations, and Lynas’ reliance on fossil fuels for mining and processing activities.

3.7 Disposal of residues

At the Mt Weld Mine and Concentration Plant, the Lynas Malaysia Plant, and the new Lynas Kalgoorlie Rare Earths Processing Plant, Lynas operations generate/will generate residue materials in the form of solids, liquids and gases. Lynas has appropriate plans in place for the treatment, sale or disposal each of those residues. Failure to implement those plans could have a material effect on Lynas’ licensing conditions and may adversely affect its operations.

3.8 Community acceptance and reputation

Lynas recognises that a strong mutual relationship with each community in which it operates is a pre-condition to successful operations. Failure to maintain those relationships and the acceptance by those communities may have an adverse effect on Lynas’ operations. In addition, Lynas recognises the importance of maintaining its reputation with all of its stakeholders including shareholders, regulatory authorities, communities, customers and suppliers. Failure to maintain its reputation with some or all of its stakeholders may have a negative impact on the future performance of Lynas.

3.9 Legal action

As announced on 17 January 2020, a judicial review application has been lodged in Malaysia challenging the processes followed during the August 2019 renewal of the Lynas Malaysia operating licence. The hearing of that judicial review application is scheduled for 19 October 2020. While Lynas has been successful in defending several similar judicial review applications in the past, any adverse court findings could materially adversely affect the ability of Lynas to operate its Malaysian plant in its current form. In addition, it is possible that in the future, Lynas could be exposed to other litigation or proceedings, either from shareholders, financiers, regulators or members of the communities in which Lynas operates.

3.10 Health and safety

Lynas is subject to extensive laws and regulation in respect of the health and safety of its people and communities, and the protection and rehabilitation of the environments within which it operates. Lynas must comply with known standards, existing laws and regulations which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and the implementation of the regulations by the permitting authority.


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3.11 Tax risks

Lynas is subject to taxation and other imposts in Australia, Malaysia and other countries or jurisdictions in which it has interests. In addition to the normal level of income tax imposed on all industries, companies in the resources sector are required to pay government royalties, direct and indirect taxes and other imposts. The profitability of companies in these industries can be affected by changes in government taxation and royalty policies or in the interpretation or application of such policies. Further, changes in tax law, or changes in the way tax law is expected to be interpreted, in the various jurisdictions in which Lynas operates, may impact the tax liabilities of Lynas.

4.1 Debt facilities and covenants

Lynas has financing arrangements in place which are subject to acceleration and enforcement rights in the event a default were to arise under them. To date, the Japan Australia Rare Earths B.V. (JARE) loan facility has been secured over all the assets of Lynas, other than Malawi assets. Pursuant to the amendments announced on 27 June 2019, JARE has released the following securities: (i) Deed of Charge - All Assets (Malaysia) and (ii) Malaysian Real Property Mortgage. Enforcement may involve enforcement of security over the assets of Lynas and its material subsidiaries, including appointing a receiver. The principal amount of the JARE facility was US$145m as at 30 June 2020. The principal amount will be due for repayment in fixed loan repayments between 31 December 2021 and 30 June 2030. In addition, the principal amount of the convertible bonds was US$12.2m (A$ 17.6m) as at 30 June 2020. The convertible bonds fully converted into ordinary shares in August 2020. In the event significant uncertainty arises in relation to Lynas’ ability to fully repay, refinance or reschedule the outstanding balances of the JARE loan facility by the maturity date of 30 June 2030, Lynas’ ability to continue as a going concern may also be affected. In addition, Lynas' existing debt facilities are subject to a range of covenants. A failure to comply with any of these debt covenants may require Lynas to seek amendments, waivers of covenant compliance or alternative borrowing arrangements. There is no assurance that its lenders would consent to such an amendment or waiver in the event of non-compliance, or that such consent would not be conditional upon the receipt of a cash payment, revised payout terms, increased interest rates, or restrictions in the expansion of debt facilities in the foreseeable future, or that its lenders would not exercise rights that would be available to them, including among other things, calling an event of default and demanding immediate payment of outstanding borrowings. If such a demand was made and appropriate forbearance or refinance arrangements could not be reached, Lynas may not have sufficient available funds to meet that demand.

4.2 Funding risk

Lynas’ existing debt facility agreements restrict its ability to incur further debt except in certain circumstances. Should Lynas experience a protracted decline in earnings, there is a possibility that the quantum of debt and/or equity funding available to Lynas would not be sufficient to execute its strategy (including its development of large scale projects) which could have a negative impact on the future financial performance or position of Lynas.

5.1 General economic conditions

Lynas' operating performance and financial performance is influenced by a variety of general economic and business conditions including the level of inflation, interest rates, exchange rates and government fiscal, monetary and regulatory policies. Prolonged deterioration in general economic conditions, including an increase in interest rates or decrease in consumer and business demand, could be expected to have an adverse impact on Lynas' business, results of operations or financial condition and performance.

5.2 Dividends

The payment of any dividends in respect of Lynas’ shares is affected by several factors, including covenants in the JARE loan facility, Lynas’ profitability, retained earnings, ability to frank dividends, capital requirements and free cash flow. Any future dividends will be determined by Lynas’ Board having regard to these factors, among others. There is no guarantee that any dividends will be paid by Lynas. If Lynas is unable to pay dividends the price of its shares may fall.

5.3 Accounting standards

Accounting standards may change. This may affect the reporting earnings of Lynas and its financial position from time to time. Lynas has previously and will continue to assess and disclose, when known, the effect of adopting new accounting standards in its periodic financial reporting.

5.4 Force majeure events

Events may occur within or outside Lynas’ key markets that could impact upon the global economies and the operations of Lynas. The events include, but are not limited, to acts of terrorism, an outbreak of international hostilities, fires, floods, earthquakes, changes in weather patterns or other severe weather events, labour strikes, civil wars, natural disasters, outbreaks of disease or other natural or man-made events or occurrences that can have an adverse effect on market conditions, the demand for Lynas’ product offering and services and Lynas’ ability to conduct business.

BASIS OF REPORT The report is based on the guidelines in The Group 100 Incorporated publication Guide to the Review of Operations and Financial Condition.

ENVIRONMENTAL REGULATION AND PERFORMANCE The Group is bound by the requirements and guidelines of the relevant environmental protection authorities for the management and rehabilitation of mining tenements owned or previously owned by the Group. Mining tenements are being maintained and rehabilitated following


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these guidelines. The Group is also bound by the requirements of its operating licence in Malaysia. There have been no known breaches of any of these conditions. We continue to focus on ensuring positive relationships with regulators and local communities, and compliance with regulatory requirements in both jurisdictions in which we operate. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Except as disclosed in the review of operations, the factors and business risks that affect future performance and the subsequent events, there have been no significant changes in the state of affairs of the Group during the year ended 30 June 2020. CORPORATE GOVERNANCE STATEMENT The Corporate Governance Statement of the Group, current on the date that the Directors’ Report is signed in accordance with a resolution of Directors made pursuant to s.298 (2) of the Corporations Act 2001, is located on the Group’s website, www.lynascorp.com.

SHARES ISSUED UPON EXERCISE OF PERFORMANCE RIGHTS During the financial year 6,151,083 Performance Rights were exercised as set out in Note E.7 to the Financial Statements. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During or since the end of the financial year, the Group has paid a premium in respect of a contract insuring all Directors and Officers of the Group against liabilities incurred as a Director or Officer of the Group, to the extent permitted by the Corporations Act 2001, that arise because of the following: (a) a wilful breach of duty; or (b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001. The insurance contract prohibits disclosure of the premiums payable under the contract. The premiums are not included as part of the Directors’ remuneration in Note E.7 to the Financial Statements. INDEMNIFICATION AND INSURANCE OF AUDITOR During or since the end of the financial year, the Group entered into an agreement with its auditors, Ernst & Young, indemnifying them against any claims by third parties arising from their report on the Annual Financial Report, except where the liability arises out of conduct involving a lack of good faith. No payment has been made to indemnify Ernst & Young during or since the financial year. NON-AUDIT SERVICES During the year Ernst & Young, the Group’s auditor, has performed certain other services in addition to the audit and review of the Financial Statements. Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in Note E.3 to the Financial Statements. The Directors have considered the non-audit services provided during the year by the auditor, and are satisfied that the provision of non-audit services by the auditor during the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: (a) All non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the

Audit and Risk Committee to ensure they do not impact the integrity and objectivity of the auditor; and

(b) The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.

Committee membership During the financial year, the Group had the following Committees of the Board of Directors: Audit & Risk Committee, Health Safety & Environment Committee, and Nomination, Remuneration and Community Committee. Directors acting on the Committees of the Board during the year ended 30 June 2020:

Audit & Risk Health, Safety & Environment Nomination, Remuneration & Community

G. Murdoch(c) P. Etienne(c) K. Conlon(c)

P. Etienne K. Conlon M. Harding

J. Humphrey M. Harding J. Humphrey (c) Chair of Committee

As summarised in the Corporate Governance Statement, the Audit & Risk Committee consists of independent Directors. The number of Directors’ meetings held during the year and the number of meetings attended by each Director was as follows:



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AUDITOR’S INDEPENDENCE DECLARATION We have obtained an independence declaration from our auditors, Ernst & Young, which follows the Directors’ Declaration. ROUNDING OF AMOUNTS The Company is of a kind referred to in Corporations Instrument 2016/191 issued by the Australian Securities and Investments Commission, in relation to the “rounding off” of amounts. Amounts in the Directors’ Report and Financial Statements have been rounded off, in accordance with the Instrument, to the nearest thousand dollars, unless otherwise stated. SUBSEQUENT EVENTS On 7 July 2020, Lynas announced that Lynas Chair Mike Harding had informed the Board of his intention to retire as Chair of the Lynas Board and as a non-executive Director of Lynas, effective from 30 September 2020. Kathleen Conlon, a Non-Executive Director of Lynas since November 2011, has been elected to succeed Mike as the Non-Executive Chair of the Lynas Board with effect from 30 September 2020. On 15 July 2020, Lynas announced a significant step towards its new Kalgoorlie Rare Earths processing plant with Metso Outotec awarded the contract to supply the plant’s kiln after a competitive tender process. The 110 metre long, 1500 tonne kiln is the largest and longest lead time piece of equipment required for the plant’s operation. The contract for engineering and supply of the kiln is valued at approximately US$15m (A$21.6m), including the discharge housing, combustion chamber and burner, motor control stations and delivery to Kalgoorlie. On 27 July 2020, Lynas announced that Phase I work on a U.S. based Heavy Rare Earth separation facility has proceeded to the contract phase and Lynas and the U.S. Department of Defense have signed a contract for this work. On 3 August 2020, bondholders converted the remaining US$12.2m (A$17.6m) convertible bonds which resulted in an additional 16.2m shares issued. As a result of these conversions, the remaining liability in respect to the convertible bonds has been fully extinguished. On 13 August 2020, Lynas announced that, consistent with JARE’s previous reductions of payments under the JARE Loan Facility to allow Lynas to use cash flow from operations on capital expenditure for the Lynas 2025 Projects, JARE has now agreed to defer until 31 October 2021 further interest payments in the amount of US$11.5m that had previously been due on 31 October 2020. On 17 August 2020, Lynas announced that the Company is undertaking an equity raising comprising a fully underwritten institutional placement and a pro-rata accelerated non-renounceable entitlement offer to raise approximately $A425m. The offer will fund the Lynas 2025 foundation projects to be delivered in 2023, including:

- The Kalgoorlie Rare Earth Processing Facility to produce mixed Rare Earth carbonate for shipment to Lynas Malaysia, and - Associated upgrades at Lynas Malaysia

With the exception of the above, there have been no other events subsequent to 30 June 2020 that would require accrual or disclosure in this

financial report.

Directors’ Meetings Audit & Risk

Health, Safety & Environment

Nomination, Remuneration & Community

Number of meetings held: 12 5 4 4

Number of meetings attended:

M. Harding 12 - 4 4

A. Lacaze 12 - - -

K. Conlon 12 - 4 4

P. Etienne 12 5 4 -

J. Humphrey 12 5 - 4

G. Murdoch 12 5 - -


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Sustainability Statement Financial Year Ended 30 June 2020 The Lynas Group has always had a strong focus on the sustainability of all aspects of our business. We impose high standards upon ourselves and we are passionate about having a positive effect on our people, our customers and suppliers, our communities and the environment. The products we sell are traceable to our mine in Western Australia and our customers receive product assurance certificates to confirm that the Rare Earths they purchase from Lynas are sourced from our mine in Mt Weld, Western Australia, and processed at our plant in Gebeng, Malaysia. Our products are used in industries where environmental provenance and sustainability of business practices are of high importance. Life Cycle Assessments conducted in conjunction with customers provide environmental assurance on the Lynas Rare Earths used in customer products. Our local communities also expect us to consistently comply with high standards in this area.

The Lynas Sustainability Report for FY20 will be sent to shareholders at the same time as our Annual Report 2020 is sent to shareholders. In addition, a copy of the Lynas Sustainability Report for FY20 will be available on the Group’s website, www.lynascorp.com.



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Remuneration Report – Audited Dear Shareholder, I am pleased to present our Remuneration Report for the year ended 30 June 2020 (FY20). As with other areas of the business, during FY20 we continued to refine and simplify executive remuneration and the Board is confident that this is aligned with shareholder outcomes. Lynas achieved important milestones for our shareholders in FY20, including receipt of a three year operating licence in Malaysia, clarification of the Malaysian regulatory requirements for NUF Residue and WLP Residue, substantial progress on the Lynas 2025 projects, in particular the proposed plant in Kalgoorlie and progress on the proposed Specialty Rare Earths plant, ongoing significant community engagement programs, particularly in Malaysia, and a well-managed return to work from the COVID-19 shutdown. There were no increases in the fixed pay of the Executives from FY14 to FY17 and in FY19. In FY18 and in FY20, the fixed pay of the Executives was increased in line with CPI. There will be no increase in the fixed pay of the Executives in FY21. In addition, the fees paid to Non-Executive directors did not increase from FY11 to FY19. From 1 January 2020, the fees paid to Non-Executive Directors were increased as set out on page 27. Total remuneration tables for Directors and Executives are shown on page 28. We believe that the incentive structure is well aligned with shareholder outcomes and STI payments have been made only to the extent that specific objectives that underpin improved performance have been delivered, as summarised above. In FY20, the only remuneration paid to Non-Executive Directors was fees (i.e. no options or similar benefits were issued).

We hope that the report will assist your understanding of our remuneration objectives and policies. We welcome your feedback on how we can further improve the remuneration report in the future. Yours sincerely,

Kathleen Conlon Chair Nomination, Remuneration and Community Committee


Directors’ Report – Remuneration Report – Audited

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This report sets out the remuneration arrangements of Directors and KMP of the Group in accordance with the Corporations Act 2001 and its regulations. A. Explanation of Key Terms The following table explains some key terms used in this report:

Executives

At as 30 June 2020, the Chief Executive Officer and Managing Director (“CEO”), the Chief Financial Officer (“CFO”), the VP Production, the VP Sales & Marketing, the General Counsel & Company Secretary, the MD Malaysia and the VP People & Culture.

Key Management Personnel (“KMP”)

Those people who have authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including the Directors (whether executive or otherwise) and the Executives.

Lynas Malaysia

Lynas Malaysia is located in Gebeng in the State of Pahang, Malaysia, and is the Group’s facility for the cracking and separation of concentrate into separated rare earths products.

Long Term Incentive (“LTI”)

LTI is the long term incentive component of Total Remuneration. LTI usually comprises Options or Performance Rights with a three-year vesting period that are subject to specified vesting conditions. Further details of the vesting conditions are in Section D. Options and Performance Rights cannot be exercised unless the vesting conditions are satisfied.

Performance Right

A Performance Right is a right to acquire a share in the future at nil cost, subject to the satisfaction of specified vesting conditions. Performance Rights are issued for the benefit of selected Executives as part of their LTI remuneration.

Short Term Incentive (“STI”) STI is the short term incentive component of Total Remuneration. An STI could be in the form of cash or Performance Rights and it is only received by the Executive if specified goals are achieved.

Total Remuneration

Total Remuneration comprises fixed pay (including superannuation, non monetary benefits and Long Service Leave (LSL) where applicable) plus STI and (if applicable) LTI.

Total Shareholder Return (“TSR”)

Total Shareholder Return is the total return from a share to an investor (i.e. capital gain plus dividends).

The KMP during the financial year ended 30 June 2020 were as follows:

Non-Executive Directors:

M. Harding Chairman

K. Conlon Non-Executive Director, and Chair of the Nomination, Remuneration & Community Committee

P. Etienne Non-Executive Director, and Chair of the Health Safety & Environment Committee

J. Humphrey Non-Executive Director

G. Murdoch Non-Executive Director, and Chair of the Audit & Risk Committee

Executives:

A. Lacaze CEO and Managing Director

G. Sturzenegger CFO

K. Leung VP Production

P. Le Roux VP Sales & Marketing

A. Arnold General Counsel & Company Secretary

M. Ahmad MD Malaysia

M. Afzan Afza VP People & Culture

Except as noted, the named person held their current position for the whole of the financial year and since the end of the financial year.


Directors’ Report – Remuneration Report – Audited

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B. Our Remuneration Philosophy The Group’s objective is to provide maximum stakeholder benefit by attracting, retaining and motivating a high quality board of directors and executive management team. Remunerating Directors and Executives fairly and appropriately, consistent with relevant employment market conditions, is an important part of achieving this goal. We align rewards to sustainable value through creating links between the achievement of organisational goals, both long and short term in nature, with the non-fixed elements of individual remuneration. To help the Group achieve this objective, the Committee links the nature and amount of the remuneration paid to the Executives to the Group’s financial and operational performance. Total remuneration (that is, fixed remuneration plus STI and LTI) is paid at market rates except in exceptional cases where skills are scarce or particularly valuable, in which case we pay as necessary. Our market is defined by location and function, i.e. Malaysia, Western Australia (WA), resources and the global rare earths market. In addition, our senior expatriate executives are remunerated at market rates necessary to attract expatriates with their skills and experience to work in our main office in Gebeng near Kuantan, in regional Malaysia. Those expatriate executives have been key drivers of the business’ strong performance as described in Section D below. STI awards create an “at risk” component with a value equal to 50% of total fixed remuneration for senior Executives (with 25% available to be paid in cash and 25% available to be paid in Performance Rights). LTI awards for senior Executives are subject to TSR and financial growth hurdles, and are granted equal to approximately 25% of total fixed remuneration for senior Executives, and 50% of total fixed remuneration for the Chief Executive Officer. External advisors and remuneration advice The Committee engages external advisors to provide advice and market related information as required. During the year, the Committee did not receive any remuneration recommendations (as defined in the Corporations Act 2001). C. Role of the Nomination, Remuneration and Community Committee The Board is responsible for determining and reviewing remuneration arrangements for Directors and Executives. The Committee assesses, on a regular basis, the appropriateness of the nature and amount of KMP remuneration. In fulfilling these duties and to support effective governance processes, the Committee:

• consists of independent Non-Executive Directors and is chaired by an independent chair;

• has unrestricted access to management and any relevant documents; and

• engages external advisers for assistance to the extent appropriate and necessary (e.g. detailing market levels of remuneration). D. Our Executive Remuneration Framework Structure Executive remuneration consists of the following key elements:

• fixed pay (base salary, superannuation, non-monetary benefits and LSL (where applicable)); and

• variable remuneration, being: o STI; and o LTI.

The Group provides no retirement benefits, other than statutory superannuation. Fixed pay Despite the significantly improved performance of the business in recent years, there has only been a marginal increase in CEO fixed pay since 2015, being a CPI increase of 3% in FY20.

Ms Lacaze’s package reflected the difficulty in recruiting a suitable candidate in June 2014 to undertake the challenging role of Lynas CEO, at a time of uncertainty regarding the Group’s future. The package also reflects the Group’s requirement for an expatriate CEO with the skills and experience necessary to manage the Group, and the need to attract and retain such a CEO in our main office in Gebeng near Kuantan, in regional Malaysia. Since June 2014, Ms Lacaze has led a signific

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